Continuous compound interest is a hypothetical term that refers to interest that is constantly being calculated and added to the balance of a loan account on a constant basis. This means that interest is being figured and added with every passing instant. In a real-world situation, this is not really possible, but the theory have been well defined, and it is often studied in higher level mathematics courses.

In real world situations, monthly compound interest is a much more common term, and it is fairly common in practice as well. Monthly compound interest simply means that the interest on the account is calculated and added to the balance of the account once a month. This is commonly used when figuring out interest charges on accounts such as credit cards, personal loans, car loans, and home loans. It is also a common way that money can be made when money is invested in the stock market or other account that pays interest on a monthly basis. Put in simple terms, if an account has a balance of $100 with a monthly compound interest rate of 5%, the account will gain $5 each month. This would add up to a yearly total of $60.

When monthly compound interest is applied to an outstanding debt, it can become very expensive for the account holder. Many credit cards, for example, have high limits, and they come with exceptionally high interest rates. A credit card carrying a $5,000 balance with a high monthly interest rate could easily be faced with hundreds, possibly even more, of dollars in interest charges alone. On the other hand, compound monthly interest is excellent for those who have money invested in an account that earns interest in this manner. If the account is low-risk, meaning there is little to no chance of the account losing money, the account holder can simply watch his or her balance go up each and every month with absolutely no work involved. For those looking for a simple investment, accounts that give monthly interest are the way to go. While the interest rates on these accounts are typically lower than the rates on higher risk, more volatile investments, the income from these accounts tends to be more steady, and there usually is very little risk of losing money.

Mathematics is the most practical subjects that we keep studying all our life. However, there are few mathematical formulas that have influenced us greatly. Compounding is one of them; there are several reasons to believe it. Continuous Compound Interest is one important application of compounding. It is a hypothetical term that refers to constantly calculated interest; that is being added regularly to a loan account. This means that there is no fixed interval at which compounding is being done; rather interest is being figured with every passing second; and added accordingly in Continuous Compound Interest . This might appear fascinating for most of you but in the real world, it is impossible. Despite of this, the theory is well defined and many higher level mathematical courses Continuous Compound Interest is taught.

Monthly compounded interest is more popular and commonly practiced in the financial sector, all over the world. In simple words, monthly compounded interest on principal is calculated after a month and is added to the balance of the account. Personal loans, car loans, credit cards and home loans are accounts on which monthly compound interest is commonly calculated. Monthly interest is also common for investments in stock markets or other accounts where interest payments are made every month. However, as you all must be knowing, in compound interest, the interest earned is not withdrawn, but reinvested as an addition to the principal amount.

An account holder might find himself in discomfort if, monthly compound interest is applied to an outstanding debt. For those credit card holders, who have high limits, the interest rate is exceptionally high as well. For example if a card has a limit of $8000, the holder might end up with an interest expense of hundreds of dollars along with the principal amount. While monthly compound interest might seem bad for some there are many who benefit from it. People who have invested large amounts benefit from this compounding. For them this investment is low risk and high yield. There are lesser chances of losing money and the rewards are much high and paid monthly. The account holders, after investment, just sit back and watch the principal amount piling up each month. They don't need to bother about repayments and risks and nor do they work for the extra dollars received. Thus, for people looking for small investment monthly compounded accounts are the best options.

Continuous Compound Interest is a fascinating theory but it has no practical implications till date. Still the importance of it can be judged by the fact that it is being taught at all higher mathematical courses in the most prestigious universities in the world.